Canaccord Financial Inc. Reports Third Quarter Fiscal 2013 Results

Transcription

1 FISCAL 2013 REPORT TO SHAREHOLDERS Q3 A WORLD OF OPPORTUNITY Canaccord Financial Inc. Reports Third Quarter Fiscal 2013 Results Earned net income of $20.5 million during the quarter, excluding significant items (1) (All dollar amounts are stated in Canadian dollars unless otherwise indicated) TORONTO, February 6, 2013 In the third quarter of fiscal 2013, the quarter ended December 31, 2012, Canaccord Financial Inc. (Canaccord, the Company, TSX: CF, LSE: CF.) generated $230.0 million in revenue. Excluding significant items (1) (a non-ifrs measure), the Company recorded net income of $20.5 million, or $0.17 per diluted common share. Including all expense items, on an IFRS basis, the Company recorded net income of $10.3 million, or $0.08 per diluted common share. The results of our fiscal third quarter clearly illustrate the benefits of the acquisitions we ve made over the last several years. With record advisory revenue, continued growth of our UK wealth management business, and strong performance in the UK and US, we re pleased with the results we generated this quarter, stated Paul Reynolds, President and CEO of Canaccord Financial Inc. Mr. Reynolds continued, Over half of Canaccord s revenue is now earned in markets outside of Canada underscoring the importance and strength of our global platform, and the value our clients receive from our comprehensive service offering. Third Quarter of Fiscal 2013 vs. Second Quarter of Fiscal 2013 Revenue of $230.0 million, up 23% or $43.4 million from $186.6 million Excluding significant items, expenses of $205.0 million, up 14% or $25.3 million from $179.7 million (1) Expenses of $216.9 million, up 6% or $12.0 million from $204.9 million Excluding significant items, net income of $20.5 million compared to net income of $5.9 million (1) Net income of $10.3 million compared to a net loss of $14.8 million Excluding significant items, diluted earnings per common share (EPS) of $0.17 compared to diluted EPS of $0.03 in the second quarter of fiscal 2013 (1) Diluted EPS of $0.08 compared to a loss per common share of $0.19 in the second quarter of fiscal 2013 Contents Canaccord Reports Third Quarter Results 1 Letter to Shareholders 6 Management s Discussion 8 and Analysis Unaudited Interim Condensed Consolidated 29 Statements of Financial Position Unaudited Interim Condensed Consolidated 30 Statements of Operations Unaudited Interim Condensed Consolidated 31 Statements of Comprehensive Income (Loss) Unaudited Interim Condensed Consolidated 32 Statements of Changes in Equity Unaudited Interim Condensed Consolidated 33 Statements of Cash Flows Notes to Unaudited Interim Condensed 34 Consolidated Financial Statements CANACCORD FINANCIAL INC. THIRD QUARTER FISCAL

2 Third Quarter of Fiscal 2013 vs. Third Quarter of Fiscal 2012 Revenue of $230.0 million, up 56% or $82.1 million from $147.9 million Excluding significant items, expenses of $205.0 million, up 55% or $72.9 million from $132.1 million (1) Expenses of $216.9 million, up 52% or $74.1 million from $142.8 million Excluding significant items, net income of $20.5 million compared to net income of $10.6 million (1) Net income of $10.3 million compared to net income of $2.5 million Excluding significant items, diluted EPS of $0.17 compared to diluted EPS of $0.11 (1) Diluted EPS of $0.08 compared to diluted EPS of $0.01 Year-to-Date Fiscal 2013 vs. Year-to-Date Fiscal 2012 (Nine Months Ended December 31, 2012 vs. Nine Months Ended December 31, 2011) Revenue of $579.2 million, up 36% or $152.0 million from $427.2 million Excluding significant items, expenses of $566.4 million, up 42% or $168.7 million from $397.7 million (1) Expenses of $608.8 million, up 47% or $195.5 million from $413.3 million Excluding significant items, net income of $10.1 million compared to net income of $23.1 million (1) Net loss of $25.2 million compared to net income of $10.4 million Excluding significant items, diluted EPS of $0.02 compared to diluted EPS of $0.23 (1) Loss per common share of $0.35 compared to diluted EPS of $0.09 Financial Condition at End of Third Quarter Fiscal 2013 vs. Third Quarter Fiscal 2012 Cash and cash equivalents balance of $556.0 million, down $144.9 million from $700.9 million Working capital of $397.2 million, down $74.7 million from $471.9 million Total shareholders equity of $1.1 billion, up $198.9 million from $852.3 million Book value per diluted common share for the period end was $7.62, down 11% or $0.92 from $8.54 (1) On February 6, 2013, the Board of Directors approved a quarterly dividend of $0.05 per common share payable on March 15, 2013 with a record date of March 1, 2013 On February 6, 2013, the Board of Directors also approved a cash dividend of $ per Series A Preferred Share payable on April 1, 2013 with a record date of March 15, 2013, and a cash dividend of $ per Series C Preferred Share payable on April 1, 2013 to Series C Preferred shareholders of record as at March 15, 2013 Summary of Operations CORPORATE On October 1, 2012, Canaccord s acquisition of Eden Financial Ltd. s wealth management business closed On October 1, 2012, Canaccord appointed Philip Evershed Global Head of Investment Banking On November 6, 2012, Canaccord appointed Steve Buell Global Head of Research On November 7, 2012, Canaccord Financial Inc. welcomed Dipesh Shah as an additional independent director on its Board 2 CANACCORD FINANCIAL INC. THIRD QUARTER FISCAL 2013

3 CAPITAL MARKETS Canaccord Genuity led or co-led 33 transactions globally, raising total proceeds of C$888 million (2) during fiscal Q3/13 Canaccord Genuity participated in 123 transactions globally, raising total proceeds of C$9.8 billion (2) during fiscal Q3/13 During fiscal Q3/13, Canaccord Genuity led or co-led the following transactions: Two transactions totalling million for HICL Infrastructure Company Limited on the LSE million for Monitise plc on AIM million for Newlon Housing Trust (Private Placement) SGD$94.0 million for Geo Energy Resources Ltd. on the SGX C$89.1 million for Trez Capital Senior Mortgage Investment Corporation (non-exchange listed) 80 million for Intermediate Capital Group Plc through a retail bond issue C$54.6 million for Pure Industrial Real Estate Trust on the TSX 48.5 million for Alpha Plus Holdings Plc through a retail bond issue US$41.4 million for AceIRX Pharmaceuticals Inc. on the NASDAQ C$34.5 million for SilverCrest Mines Inc. on the TSX Venture AUD$36.0 million for Lifestyle Communities Limited on the ASX AUD$30.0 million for Neon Energy Limited on the ASX C$30.0 million for Labrador Iron Mines Holdings Limited on the TSX C$28.8 million for TriOil Resources Ltd. on the TSX AUD$21.0 million for Orocobre Limited on the ASX 20.0 million for Secure Trust Bank Plc on AIM In Canada, Canaccord Genuity raised $238.1 million for government bond issuances and $25.0 million for corporate bond issuances during fiscal Q3/13 Canaccord Genuity generated record advisory revenues of $69.3 million during fiscal Q3/13, an increase of 80% compared to the previous record of $38.5 million generated in the same quarter last year During fiscal Q3/13, Canaccord advised on the following M&A and advisory transactions: Viterra Inc. on its acquisition by Glencore International plc Yellow Media Ltd. on its C$2.8 billion recapitalization Research In Motion on the sale of NewBay Software to Synchronoss Technologies, Inc. Mateco Group (Odewald & Compagnie) on its acquisition by TVH Group Sprott Power Corp. on its acquisition of Shear Wind Inc. Automotive Technologies Inc. (Wireless Zone) on its acquisition by Glentel Inc. Eco-Products on its acquisition by WNA, Inc. GT Advanced Technologies on its acquisition of Twin Creek Technologies Mears Group on its acquisition of Morrison Facilities Services Limited Wildroots and TrueBliss on their acquisition by Continental Mills, Inc. Psion on its acquisition by Motorola Solutions, Inc. Buy As You View Holdings Limited on its acquisition by Rutland Partners DHX Media Ltd. on its acquisition of Cookie Jar Entertainment Score Media Inc. on its acquisition by Rogers Communications Corp. Zetar on its acquisition by Zertus UK Holding Limited Unifeeder on its acquisition of Feederlink from Irish Continental Group CANACCORD WEALTH MANAGEMENT (GLOBAL) Globally, Canaccord Wealth Management generated $60.0 million in revenue Assets under administration in Canada, and assets under management in the UK and Europe, and Australia, were $27.0 billion at the end of Q3/13 (1) CANACCORD FINANCIAL INC. THIRD QUARTER FISCAL

4 CANACCORD WEALTH MANAGEMENT (NORTH AMERICA AND AUSTRALIA) Canaccord Wealth Management generated $35.2 million in revenue and, after intersegment allocations, recorded a net loss of $5.6 million before taxes in Q3/13 Assets under administration in Canada were $11.4 billion as at December 31, 2012, down 14% from $13.3 billion at the end of the previous quarter and down 21% from $14.4 billion at the end of fiscal Q3/12 (1) This decrease is due largely to the reduction of branches operating in Canada, as was announced on September 24, 2012 Assets under management in Australia were $408 million at the end of fiscal Q3/13, up 15% from $354 million at the end of the previous quarter (1) Assets under management in Canada (discretionary) were $791 million as at December 31, 2012, up 1% from $784 million at the end of the previous quarter and up 30% from $607 million at the end of fiscal Q3/12 (1) As at December 31, 2012, Canaccord Wealth Management had 184 Advisory Teams (3), a decrease of 94 Advisory Teams from December 31, 2011 and a decrease of 47 from September 30, 2012 CANACCORD WEALTH MANAGEMENT (UK AND EUROPE) Collins Stewart Wealth Management generated $24.8 million in revenue and, excluding significant items, recorded net income of $2.4 million before taxes in Q3/13 This division recognized $1.5 million of restructuring and acquisition-related costs related to the purchase of Eden Financial Ltd. s wealth management business and $1.6 million of amortization of intangible assets acquired in connection with the acquisition of CSHP. Including these significant items, Collins Stewart Wealth Management recorded a net loss after intersegment allocations and before income taxes of $0.7 million during the quarter ended December 31, 2012 Assets under management (discretionary and non-discretionary) were $15.2 billion ( 9.5 billion) NON-IFRS MEASURES The non-international Financial Reporting Standards (IFRS) measures presented include assets under administration, assets under management, book value per diluted common share and figures that exclude significant items. Significant items include restructuring costs, amortization of intangible assets, and acquisition-related expense items, which include costs recognized in relation to both prospective and completed acquisitions. Management believes that these non-ifrs measures will allow for a better evaluation of the operating performance of Canaccord s business and facilitate meaningful comparison of results in the current period to those in prior periods and future periods. Figures that exclude significant items provide useful information by excluding certain items that may not be indicative of Canaccord s core operating results. A limitation of utilizing these figures that exclude significant items is that the IFRS accounting effects of these items do in fact reflect the underlying financial results of Canaccord s business; thus, these effects should not be ignored in evaluating and analyzing Canaccord s financial results. Therefore, management believes that Canaccord s IFRS measures of financial performance and the respective non-ifrs measures should be considered together. (1) See Non-IFRS Measures above. (2) Source: Transactions over $1.5 million. Internally sourced information. (3) Advisory Teams are normally comprised of one or more Investment Advisors (IAs) and their assistants and associates, who together manage a shared set of client accounts. Advisory Teams that are led by, or only include, an IA who has been licensed for less than three years are not included in our Advisory Team count, as it typically takes a new IA approximately three years to build an average-sized book of business. 4 CANACCORD FINANCIAL INC. THIRD QUARTER FISCAL 2013

5 SELECTED FINANCIAL INFORMATION EXCLUDING SIGNIFICANT ITEMS Three months ended December 31 Nine months ended December 31 Quarter-over- YTD-over-YTD (C$ thousands, except per share and % amounts) quarter change change Total revenue per IFRS $ 230,003 $ 147, % $ 579,151 $ 427, % Total expenses per IFRS 216, , % 608, , % Signifi cant items recorded in Canaccord Genuity Restructuring costs 5,276 1,292 n.m. 9,671 1,292 n.m. Acquisition-related costs 2,700 (100.0)% 388 4,143 (90.6)% Amortization of intangible assets 3,473 1, % 11,282 3, % Signifi cant items recorded in Canaccord Wealth Management Restructuring costs 1,034 n.m. 14,601 n.m. Acquisition-related costs 431 n.m. 1,331 n.m. Amortization of intangible assets 1,643 n.m. 4,255 n.m. Signifi cant items recorded in Corporate and Other Restructuring costs 5,000 (100.0)% 900 5,000 (82.0)% Acquisition-related costs n.m. 1,513 (100.0)% Total signifi cant items 11,857 10, % 42,428 15, % Total expenses excluding signifi cant items 205, , % 566, , % Net income before taxes adjusted $ 24,978 $ 15, % $ 12,739 $ 29,495 (56.8)% Income taxes adjusted 4,525 5,182 (12.7)% 2,674 6,391 (58.2)% Net income adjusted $ 20,453 $ 10, % $ 10,065 $ 23,104 (56.4)% Earnings per common share basic, adjusted $ 0.19 $ % $ 0.02 $ 0.26 (92.3)% Earnings per common share diluted, adjusted $ 0.17 $ % $ 0.02 $ 0.23 (91.3)% n.m.: not meaningful CANACCORD FINANCIAL INC. THIRD QUARTER FISCAL

6 Fellow Shareholders: The results of our fiscal third quarter demonstrate the value of our larger, global platform and the importance of the investments we ve made over the last several years. Most notably, the successful integration of our acquisition of Collins Stewart Hawkpoint is evident across our business. Our UK and US operations are now operating profitably (1). We re benefiting from a strong UK and European wealth management platform, in markets that should provide even more opportunities to grow client assets. And we ve established Canaccord Genuity as a leading investment bank in the UK. In fact, Canaccord Genuity was the second most active investment bank in the UK for the number of transactions led or co-led during calendar 2012, and ninth overall for total proceeds raised for clients, in this highly competitive market (2). Our strategy of geographic diversification appears to be well timed. By expanding our operations in the UK, US and overseas markets, we are much better positioned to leverage international market opportunities and withstand regional fluctuations of capital markets activity. The results of which are apparent in our performance. Half of Canaccord s revenue is now generated in markets outside of Canada underscoring the importance of the expansion activities we successfully executed over the last several years. Quarterly Performance Record advisory fees drove significant revenue gains during our fiscal third quarter. In the three months ended December 31, 2012, Canaccord Financial Inc. generated revenue of $230.0 million and adjusted net income (1) of $20.5 million, or $0.17 per diluted common share. During the quarter we implemented a number of strategies aimed at enhancing the performance of some of our businesses. These initiatives resulted in $11.9 million of restructuring costs and other significant items not related to continuing operating activities. Including significant items, on an IFRS basis, the Company generated net income of $10.3 million, or $0.08 per diluted share. Annualized return on common shareholders equity, excluding significant items, increased to 7.8% during the quarter. We re pleased with the progress we re making to enhance ROE. Just as important, the increased diversification of our business should allow us to achieve more consistent returns going forward. We remain committed to a conservative capital strategy. Our business continues to be well capitalized to serve our clients, both in the current market environment and during periods with much more robust market activity. At the end of the fiscal third quarter, Canaccord had $556.0 million in cash and cash equivalents, $397.2 million in net working capital and $1.1 billion in shareholders equity. I m also pleased to confirm that our Board of Directors approved a dividend of $0.05 this quarter. Canaccord Genuity Our strategy to further integrate our global capital markets platform, particularly within our investment banking practice, is progressing very well. We believe these efforts will further enhance the value of the services we offer and increase our relevance to clients. We also expect additional synergies will be achieved through further cross-border collaboration benefiting both our business and our clients. Canaccord Genuity generated $165.4 million of revenue globally, an increase of 39% from last quarter and 77% from the same period last year. While revenue grew substantially, operating expenses only increased 16% from the previous quarter, which lowered expense ratios in this division meaningfully. Canaccord Genuity contributed $29.3 million of adjusted net income before tax (1) to the Company during the fiscal quarter, an increase of 116% compared to the same period last year. This quarter set a new company record for M&A and advisory revenue. At $69.3 million, more revenue was generated through our global advisory practice than in the past two quarters combined. In addition, in the first nine months of fiscal 2013 we have generated 15% more advisory revenue than all of last year. This performance was helped by two substantial and high-profile advisory mandates completed in Canada, as well as increased advisory activity in the UK and Europe. It is a strong representation of the value being generated from our acquisitions of Genuity Capital Markets in 2010 and Collins Stewart Hawkpoint last year. We are particularly pleased with the performance of our advisory practice, and continue to have a very healthy pipeline of advisory mandates. In the last several months we have taken steps to better integrate the advisory business of Canaccord Genuity Hawkpoint into our broader global investment banking group. We expect our UK and European clients will benefit greatly from this integrated approach, through our ability to meet multiple corporate needs with one dedicated team. When this initiative completes on March 1, this business will operate under the Canaccord Genuity brand. Capital raising activity also benefited from the expanded reach of our operations this quarter, with contributions from all the markets we service. On a global basis, Canaccord Genuity led or co-led 33 transactions over $1.5 million during the quarter, raising over C$887 million for clients. Investment banking activities generated $34.2 million of revenue for the division, a 10% increase from last quarter, and a 45% increase from the same period last year. 6 CANACCORD FINANCIAL INC. THIRD QUARTER FISCAL 2013

7 Letter to Shareholders Wealth Management Much of our focus this quarter was dedicated to enhancing our global wealth management platform. In the UK, we were very pleased to welcome our new colleagues from Eden Financial on October 1. Approximately 35 wealth management professionals joined our firm, as did 2,500 client accounts and 835 million of new client assets. This team is now working side-by-side with colleagues from Collins Stewart Wealth Management and will ultimately work from the same support platform. In Canada, we continued with our strategy of strengthening our platform by focusing our operations in core Canadian centres. Canaccord Wealth Management now has 16 branches across the country. At the end of the quarter, our Canadian wealth management division had 184 Investment Advisory teams and $11.4 billion of assets under administration. Combined, Canaccord s wealth management operations generated $60.0 million of revenue, an increase of 4% compared to last quarter and 35% compared to the same period last year. Today, our global wealth management platform operates in Canada, the UK, Switzerland, the Channel Islands, the Isle of Man and Australia. We oversee $27.0 billion of client assets (3). And we offer clients tailored services through our team of over 800 wealth management employees. To better reflect the scope of this division, I m pleased to announce that our global wealth management operations will soon be unified under one universal brand: Canaccord Genuity Wealth Management. We believe this change will more accurately communicate the span of our wealth management businesses to our clients and stakeholders, and will allow us to more easily share resources amongst the markets we operate in. We expect this branding change will be implemented during the second calendar quarter. Looking Forward While the market environment has been less than optimal for several quarters, we are beginning to see promising signs of capital markets activity. We re optimistic that equity markets and financing transactions will rebound in the coming months, as we are already seeing positive inflows to equities from fixed income products. As appetite for risk returns, particularly in the US and the UK, we expect our well-established transactional capabilities will benefit alongside our already robust M&A pipeline. Our focus continues to be on further integrating our business within our investment banking practice and across our wealth management platform, in order to capture the full value of our operating scale. We also remain committed to evaluating ways to enhance the earnings capabilities of our firm, whether they involve activities aimed at lowering our expense ratios or growing our relevance to clients. All of our efforts have been, and will continue to be, aimed at expanding our client relationships and increasing the value of our business for our shareholders. Kind regards, PAUL D. REYNOLDS President & CEO (1) Excluding restructuring and acquisition-related items referred to as signifi cant items elsewhere in this report. Adjusted net income before tax is net income before tax excluding significant items. (2) Thomson Reuters information. (3) As at December 31, CANACCORD FINANCIAL INC. THIRD QUARTER FISCAL

8 Management s Discussion and Analysis Third quarter fiscal 2013 for the three months and nine months ended December 31, 2012 this document is dated February 6, 2013 The following discussion of the financial condition and results of operations for Canaccord Financial Inc. (Canaccord or the Company) is provided to enable the reader to assess material changes in our financial condition and to assess results for the three- and nine-month periods ended December 31, 2012 compared to the corresponding periods in the preceding fiscal year. The three- and nine-month periods ended December 31, 2012 are also referred to as third quarter 2013 and Q3/13. This discussion should be read in conjunction with the unaudited interim condensed consolidated financial statements for the three- and nine-month periods ended December 31, 2012, beginning on page 29 of this report; our Annual Information Form (AIF) dated May 29, 2012; and the 2012 annual Management s Discussion and Analysis (MD&A) including the audited consolidated financial statements for the fiscal year ended March 31, 2012 (Audited Annual Consolidated Financial Statements) in Canaccord s annual report dated May 23, 2012 (the annual report). There has been no material change to the information contained in the annual MD&A for fiscal 2012 except as disclosed in this MD&A. Canaccord s financial information is expressed in Canadian dollars unless otherwise specified. Cautionary Statement Regarding Forward-Looking Information This document may contain forward-looking statements (as defined under applicable securities laws). These statements relate to future events or future performance and reflect management s expectations, beliefs, plans, estimates, intentions and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts, including business and economic conditions and Canaccord s growth, results of operations, performance and business prospects and opportunities. Such forward-looking statements reflect management s current beliefs and are based on information currently available to management. In some cases, forwardlooking statements can be identified by terminology such as may, will, should, expect, plan, anticipate, believe, estimate, predict, potential, continue, target, intend, could or the negative of these terms or other comparable terminology. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and a number of factors could cause actual events or results to differ materially from the results discussed in the forward-looking statements. In evaluating these statements, readers should specifically consider various factors that may cause actual results to differ materially from any forward-looking statement. These factors include, but are not limited to, market and general economic conditions, the nature of the financial services industry and the risks and uncertainties discussed from time to time in the Company s interim condensed and annual consolidated financial statements and its annual report and the AIF filed on as well as the factors discussed in the section entitled Risks in this MD&A, which include market, liquidity, credit, operational, legal and regulatory risks. Material factors or assumptions that were used by the Company to develop the forwardlooking information contained in this document include, but are not limited to, those set out in the Fiscal 2013 Outlook section in the annual MD&A and those discussed from time to time in the Company s interim condensed and annual consolidated financial statements and its annual report and the AIF filed on The preceding list is not exhaustive of all possible risk factors that may influence actual results. Readers are cautioned that the preceding list of material factors or assumptions is not exhaustive. Although the forward-looking information contained in this document is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. The forward-looking statements contained in this document are made as of the date of this document and should not be relied upon as representing the Company s views as of any date subsequent to the date of this document. Certain statements included in this document may be considered financial outlook for purposes of applicable Canadian securities laws, and such financial outlook may not be appropriate for purposes other than this document. Except as may be required by applicable law, the Company does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking information, whether as a result of new information, further developments or otherwise. Presentation of Financial Information and Non-IFRS Measures This MD&A is based on the unaudited interim condensed consolidated financial statements for the three- and nine-month periods ended December 31, 2012 (Third Quarter 2013 Financial Statements) prepared in accordance with International Financial Reporting Standards (IFRS). The Third Quarter 2013 Financial Statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (IAS 34), using accounting policies consistent with those applied in preparing the Company s Audited Annual Consolidated Financial Statements for the year ended March 31, CANACCORD FINANCIAL INC. THIRD QUARTER FISCAL 2013

9 Management s Discussion and Analysis NON-IFRS MEASURES Certain non-ifrs measures are utilized by Canaccord as measures of financial performance. Non-IFRS measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Non-IFRS measures presented include assets under administration, assets under management, book value per diluted common share, return on common equity and figures that exclude significant items. Canaccord s capital is represented by common shareholders equity and, therefore, management uses return on common equity (ROE) as a performance measure. Also used by the Company as a performance measure is book value per diluted common share, which is calculated as total common shareholders equity divided by the number of diluted common shares outstanding. Assets under administration (AUA) and assets under management (AUM) are non-ifrs measures of client assets that are common to the wealth management business. AUA Canada, AUM Australia or AUM UK and Europe is the market value of client assets managed and administered by Canaccord from which Canaccord earns commissions and fees. This measure includes funds held in client accounts as well as the aggregate market value of long and short security positions. AUM Canada includes all assets managed on a discretionary basis under programs that are generally described as or known as the Complete Canaccord Investment Counselling Program and the Complete Canaccord Managed Account Program. Services provided include the selection of investments and the provision of investment advice. Canaccord s method of calculating AUA Canada, AUM Canada, AUM Australia or AUM UK and Europe may differ from the methods used by other companies and therefore may not be comparable to other companies. Management uses these measures to assess operational performance of the Canaccord Wealth Management business segment, which now includes Collins Stewart Wealth Management. AUM Canada is also administered by Canaccord and is included in AUA Canada. Financial statement items that exclude significant items are non-ifrs measures. Significant items for these purposes are defined as including restructuring costs, amortization of intangible assets, and acquisition-related expense items, which include costs recognized in relation to both prospective and completed acquisitions. See the Selected Financial Information Excluding Significant Items table on page 13. Management believes that these non-ifrs measures allow for a better evaluation of the operating performance of Canaccord s business and facilitate meaningful comparison of results in the current period to those in prior periods and future periods. Figures that exclude significant items provide useful information by excluding certain items that may not be indicative of Canaccord s core operating results. A limitation of utilizing these figures that exclude significant items is that the IFRS accounting for these items does in fact reflect the underlying financial results of Canaccord s business; thus, these effects should not be ignored in evaluating and analyzing Canaccord s financial results. Therefore, management believes that Canaccord s IFRS measures of financial performance and the respective non-ifrs measures should be considered together. Business Overview Through its principal subsidiaries, Canaccord Financial Inc. is a leading independent, full-service financial services firm, with operations in two principal segments of the securities industry: global capital markets and wealth management. Since its establishment in 1950, Canaccord has been driven by an unwavering commitment to building lasting client relationships. We achieve this by generating value for our individual, institutional and corporate clients through comprehensive investment solutions, brokerage services and investment banking services. Canaccord has offices in 13 countries worldwide, including wealth management offices located in Canada, Australia, the UK and Europe. Canaccord Genuity, the Company s international capital markets division, has operations in Canada, the US, the UK, France, Germany, Ireland, Italy, Hong Kong, mainland China, Singapore, Myanmar, Australia and Barbados. Canaccord Financial Inc. is publicly traded under the symbol CF on the TSX and the symbol CF. on the main market of the London Stock Exchange. Canaccord Series A Preferred Shares are listed on the TSX under the symbol CF.PR.A. Canaccord Series C Preferred Shares are listed on the TSX under the symbol CF.PR.C. Our business is affected by the overall condition of the worldwide equity and debt markets, including the seasonal variance in these markets. BUSINESS ENVIRONMENT Global equity markets pursued their recovery during Canaccord s fiscal third quarter of Investors risk appetite improved as a result of another quantitative easing initiative announced by the US Federal Reserve (Fed) in December, with a monetary policy aimed at supporting a reasonable level of economic and employment growth. That is, the Fed has committed to holding interest rates steady until unemployment falls at least to 6.5% a level projected to be reached in Furthermore, in view of the large economic output gap and upcoming fiscal constraints, the Fed is prepared to tolerate inflation rates above baseline projections of 2% in order to provide the economy with a margin of safety. Elsewhere, in Asia, more fiscal stimulus in China helped the economy re-accelerate, with fourth-quarter GDP rebounding to 7.9% from 7.4%. And in Europe, with the European Central Banks acting as a backstop for investors, borrowing costs continued their decline with yields on most distressed debt countries falling to new year lows. CANACCORD FINANCIAL INC. THIRD QUARTER FISCAL

10 Management s Discussion and Analysis During fiscal Q3/13, equity markets were held back by much uncertainty regarding the US fiscal-cliff negotiations. Nevertheless, the Canadian S&P/TSX Composite rose 0.9%, compared to a 1.0% decline for the S&P 500 and a 2.5% increase for the MSCI world equity index. Canadian equities underperformed compared to their world counterparts, owing to the poor showing of commodity prices (-2.9%). This setback, along with year-end tax-loss selling activities, contributed to the underperformance of small-cap equities, with the S&P/TSX Venture index falling a notable 8.5%. Nonetheless, equity-market returns have largely outperformed government and corporate bonds during calendar However, this positive shift in investors risk appetite has yet to translate into more underwriting and secondary market-trading activities. The bulk of improvement in industry capital markets revenues during fiscal Q3/13 came from Mergers & Acquisitions (M&A) and advisory activities. Looking forward, leading economic indicators point to a phase of economic re-acceleration for the global economy later this spring assuming fiscal authorities do not negate the efforts of world central banks. Global capital markets are well positioned to benefit from these conditions, especially in Canada, where this environment is typically characterized by rising equity and commodity prices. While M&A and advisory revenues have strengthened lately, we are optimistic that industry revenues will continue to improve and broaden from fiscal Q3/13 through increased underwriting and trading activities. MARKET DATA Financing values on the TSX and TSX Venture experienced increases compared to the previous quarter and the year-over-year period. Financing values on AIM experienced a notable increase compared to the previous quarter and a mild increase compared to the same period last year. On the NASDAQ, financing values experienced a decline compared to the previous quarter, yet experienced a slight increase compared to the same period last year. TOTAL FINANCING VALUE BY EXCHANGE Change from Change from October 2012 November 2012 December 2012 Fiscal Q3/13 fi scal Q3/12 fi scal Q2/13 TSX and TSX Venture (C$ billions) % 42.3% AIM ( billions) % 80.0% NASDAQ (US$ billions) % (24.1)% Source: TSX Statistics, LSE AIM Statistics, Equidesk ABOUT CANACCORD S OPERATIONS Canaccord Financial Inc. s operations are divided into two business segments: Canaccord Genuity (capital markets operations) and Canaccord Wealth Management. Together, these operations offer a wide range of complementary investment banking services, investment products and brokerage services to Canaccord s institutional, corporate and private clients. Canaccord s administrative segment is referred to as Corporate and Other. Canaccord Genuity Canaccord Genuity offers corporations and institutional investors around the world an integrated platform for equity research, sales and trading, and investment banking services that is built on extensive operations in Canada, the UK, Europe, the US, China, Myanmar, Singapore, Australia and Barbados. The Canaccord Genuity business segment includes operations from Canaccord Genuity branded businesses, and also from Canaccord Genuity Hawkpoint and Canaccord Genuity Asia. 10 CANACCORD FINANCIAL INC. THIRD QUARTER FISCAL 2013

11 Management s Discussion and Analysis Canaccord Wealth Management Canaccord s wealth management operations provide comprehensive wealth management solutions and brokerage services to individual investors, private clients, charities and intermediaries, through a full suite of services tailored to the needs of clients in each of the markets the division operates in. Canaccord s growing wealth management division now has Investment Advisors (IAs) and professionals in Canada, Australia, the UK, Switzerland and offshore locations (the Channel Islands and Isle of Man). The Canaccord Wealth Management business segment includes operations from Canaccord Wealth Management branded businesses and Collins Stewart Wealth Management. Corporate and Other Canaccord s administrative segment, described as Corporate and Other, includes revenues and expenses associated with providing correspondent brokerage services, bank and other interest, foreign exchange gains and losses, and activities not specifically allocable to either the Canaccord Genuity or Canaccord Wealth Management divisions. Also included in this segment are Canaccord s operations and support services, which are responsible for front- and back-office information technology systems, compliance and risk management, operations, finance, and all administrative functions. Corporate structure Canaccord Financial Inc. US sub-group 50% Canaccord Genuity Corp. (Canada) Canaccord Wealth Management (USA) Inc. Canaccord Genuity Inc. (US) Collins Stewart (C.I.) Limited (Channel Islands) Collins Stewart Wealth Management Limited (UK) Canaccord Genuity Limited (UK) Canaccord Genuity Asia (China and Hong Kong) Canaccord Genuity (Australia) Limited Canaccord International Ltd. (Barbados) Canaccord Genuity Hawkpoint Limited (UK) Canaccord Genuity Singapore Pte. Ltd. Canaccord Genuity (Hong Kong) Limited CANACCORD FINANCIAL INC. THIRD QUARTER FISCAL

12 Management s Discussion and Analysis Consolidated Operating Results THIRD QUARTER AND YEAR-TO-DATE 2013 SUMMARY DATA (1)(2) Three months ended December 31 Nine months ended December 31 QTD YTD (C$ thousands, except per share, Q3/13 vs. FY 2013 vs. employee and % amounts) Q3/ FY 2012 Canaccord Financial Inc. (CFI) Revenue Commissions and fees $ 87,406 $ 57,380 $ 87, % $ 263,001 $ 178,707 $ 212, % Investment banking 40,459 32, , % 106, , ,853 (12.1)% Advisory fees 69,348 38,541 25, % 123,545 82,736 59, % Principal trading 18,670 3,304 10,658 n.m. 43,626 3,878 26,213 n.m. Interest 7,291 8,147 7,753 (10.5)% 22,441 23,594 16,333 (4.9)% Other 6,829 8,502 6,998 (19.7)% 19,575 16,585 17, % Total revenue 230, , , % 579, , , % Expenses Incentive compensation 114,137 69, , % 293, , , % Salaries and benefits 21,082 15,009 14, % 65,697 46,289 46, % Other overhead expenses (3) 74,922 49,006 49, % 222, , , % Restructuring costs 6,310 6, % 25,172 6,292 n.m. Acquisition-related costs 431 2,700 1,750 (84.0)% 1,719 5,656 12,740 (69.6)% Total expenses 216, , , % 608, , , % Income (loss) before income taxes 13,121 5,067 61, % (29,689) 13,920 84,156 n.m. Net income (loss) $ 10,264 $ 2,531 $ 42,997 n.m. $ (25,199) $ 10,448 $ 58,420 n.m. Net income (loss) attributable to: CFI shareholders $ 10,880 $ 3,026 $ 42, % $ (23,649) $ 10,943 $ 58,420 n.m. Non-controlling interests $ (616) $ (495) $ 24.4% $ (1,550) $ (495) $ 213.1% Earnings (loss) per common share diluted $ 0.08 $ 0.01 $ 0.51 n.m. $ (0.35) $ 0.09 $ 0.72 n.m. Return on common equity (4) 3.7% 0.6% 24.3% 3.1 p.p. (5.0)% 1.3% 11.4% (6.3) p.p. Dividends per common share $ 0.05 $ 0.10 $ (50.0)% $ 0.15 $ 0.30 $ (50.0)% Book value per diluted common share (5) $ 7.62 $ 8.54 $ 8.43 (10.8)% Total assets $ 4,977,201 $ 4,439,877 $ 4,555, % Total liabilities $ 3,910,105 $ 3,569,364 $ 3,831, % Non-controlling interests $ 15,913 $ 18,218 $ (12.7)% Total shareholders equity $ 1,051,183 $ 852,295 $ 724, % Number of employees 2,129 1,735 1, % Excluding significant items (6) Total expenses $ 205,025 $ 132,063 $ 190, % $ 566,412 $ 397,677 $ 454, % Income before income taxes 24,978 15,826 64, % 12,739 29, ,092 (56.8)% Net income 20,453 10,644 45, % 10,065 23,104 71,873 (56.4)% Net income attributable to CFI shareholders 20,746 10,825 45, % 10,550 23,285 71,873 (54.7)% Earnings per common share diluted % (91.3)% (1) Data is in accordance with IFRS except for ROE, book value per diluted common share, number of employees, and fi gures that exclude signifi cant items. See Non-IFRS Measures on page 9. (2) Data includes the results of Genuity since the closing date of April 23, Results of Canaccord Genuity Asia since the closing date of January 17, 2011 and the results for Canaccord Genuity and Canaccord Wealth Management operations in Australia since the closing date of November 1, 2011 are also included. The operating results of the Australian operations have been fully consolidated and a 50% non-controlling interest has been recognized. Results of former Collins Stewart Hawkpoint plc (CSHP) entities since March 22, 2012 and the wealth management business of Eden Financial Ltd. since October 1, 2012 are also included. (3) Consists of trading costs, premises and equipment, communication and technology, interest, general and administrative, amortization and development costs. (4) ROE is presented on an annualized basis. ROE for each period is calculated by dividing the annualized net income (loss) available to common shareholders for the period over the average common shareholders equity for the period. (5) Book value per diluted common share is calculated as total common shareholders equity divided by the number of diluted common shares outstanding. (6) Net income (loss) and earnings (loss) per diluted common share excluding signifi cant items refl ect tax-effected adjustments related to such items. See the Selected Financial Information Excluding Signifi cant Items table on page 13. p.p.: percentage points n.m.: not meaningful 12 CANACCORD FINANCIAL INC. THIRD QUARTER FISCAL 2013

13 Management s Discussion and Analysis SELECTED FINANCIAL INFORMATION EXCLUDING SIGNIFICANT ITEMS (1) Three months ended December 31 Nine months ended December 31 Quarter-over- YTD-over-YTD (C$ thousands, except per share and % amounts) quarter change change Total revenue per IFRS $ 230,003 $ 147, % $ 579,151 $ 427, % Total expenses per IFRS 216, , % 608, , % Signifi cant items recorded in Canaccord Genuity Restructuring costs 5,276 1,292 n.m. 9,671 1,292 n.m. Acquisition-related costs 2,700 (100.0)% 388 4,143 (90.6)% Amortization of intangible assets 3,473 1, % 11,282 3, % Signifi cant items recorded in Canaccord Wealth Management Restructuring costs 1,034 n.m. 14,601 n.m. Acquisition-related costs 431 n.m. 1,331 n.m. Amortization of intangible assets 1,643 n.m. 4,255 n.m. Signifi cant items recorded in Corporate and Other Restructuring costs 5,000 (100.0)% 900 5,000 (82.0)% Acquisition-related costs n.m. 1,513 (100.0)% Total signifi cant items 11,857 10, % 42,428 15, % Total expenses excluding signifi cant items 205, , % 566, , % Net income before taxes adjusted $ 24,978 $ 15, % $ 12,739 $ 29,495 (56.8)% Income taxes adjusted 4,525 5,182 (12.7)% 2,674 6,391 (58.2)% Net income adjusted $ 20,453 $ 10, % $ 10,065 $ 23,104 (56.4)% Earnings per common share basic, adjusted $ 0.19 $ % $ 0.02 $ 0.26 (92.3)% Earnings per common share diluted, adjusted $ 0.17 $ % $ 0.02 $ 0.23 (91.3)% (1) Figures excluding signifi cant items are non-ifrs measures. See Non-IFRS Measures on page 9. n.m.: not meaningful Revenue Third quarter 2013 vs. third quarter 2012 On a consolidated basis, revenue is generated through six activities: commissions and fees associated with agency trading and private client wealth management activity, investment banking, advisory fees, principal trading, interest and other. Revenue for the three months ended December 31, 2012 was $230.0 million, an increase of 55.5% or $82.1 million compared to the same period a year ago. Revenue generated from commissions and fees increased by $30.0 million, to $87.4 million, compared to the same period a year ago, primarily as a result of additional management fees revenue generated from our new wealth management division in the UK and Europe. The acquisition of CSHP operations in Q4/12 led to increases in investment banking and advisory fees in Q3/13 compared to Q3/12. Investment banking revenue was $40.5 million, up $8.4 million or 26.4%, and advisory revenue grew by $30.8 million or 79.9%, to $69.3 million, in Q3/13, from the same period a year ago. The growth in investment banking was most notable in the UK and Europe, with a $9.4 million increase. Advisory fees grew by $12.6 million in the UK and Europe. Advisory revenue in the Canadian capital markets operations also increased, by $17.4 million, as a result of the increased activity and large scale transactions that closed during the quarter. The Company s global expansion also contributed to our principal trading revenue, especially in the US geographic segment. Principal trading revenue was $18.7 million, up $15.4 million compared to $3.3 million in Q3/12. The fluctuation in the Canadian dollar resulted in a drop in foreign exchange gains in Q3/13, as reflected by the decrease in other revenue. Year-to-date fiscal 2013 vs. year-to-date fiscal 2012 Revenue for the nine months ended December 31, 2012 was $579.2 million, an increase of 35.6% or $152.0 million compared to the same period a year ago, mainly due to the expanded operations achieved through the acquisitions of CSHP and a 50% interest in Canaccord Genuity (Australia) Limited (formerly Canaccord BGF). Commissions and fees revenue was $263.0 million, representing an increase of 47.2%. Revenue generated from investment banking activities was down 12.1%, to $107.0 million, due to a decline in financing activity in equity markets in Canada and the US. CANACCORD FINANCIAL INC. THIRD QUARTER FISCAL

14 Management s Discussion and Analysis Advisory fees of $123.5 million represented an increase of 49.3%, or $40.8 million, compared to the same period in the prior year. As noted above, the expansion in the UK and Europe, through the acquisition of CSHP, is the main contributor to the increase in advisory fees. Revenue derived from principal trading was $39.7 million higher at $43.6 million, compared to the same period last year, primarily due to the expansion of the UK and Europe, and US operations. Other revenue increased by $3.0 million, to $19.6 million, compared to the same period last year, largely as a result of higher foreign exchange gains and the gain on sale of our investment in Alpha Trading System (Alpha). GEOGRAPHIC DISTRIBUTION OF REVENUE FOR THE THIRD QUARTER 2013 (1) Three months ended December 31 Nine months ended December 31 Quarter-over- YTD-over-YTD (C$ thousands, except % amounts) quarter change change Canada $ 115,470 $ 110, % $ 272,839 $ 325,277 (16.1)% UK and Europe 69,040 12,748 n.m. 177,553 31,332 n.m. US 38,195 18, % 109,897 63, % Other Foreign Locations (2) 7,298 6, % 18,862 6, % Total $ 230,003 $ 147, % $ 579,151 $ 427, % (1) For a business description of Canaccord s geographic distribution, please refer to the About Canaccord s Operations section on page 10. (2) Other Foreign Locations include operations for Canaccord International Ltd., Canaccord Genuity Asia, Canaccord Genuity Singapore Pte. Ltd., and Canaccord Genuity (Australia) Limited (formerly Canaccord BGF). n.m.: not meaningful Third quarter 2013 vs. third quarter 2012 Third quarter 2013 revenue in Canada increased in our capital markets as a result of higher advisory fees, which were partially offset by a decrease in revenue generated in the wealth management segments as a result of the branch closures in the second quarter of fiscal Revenue derived from the Corporate and Other segment also decreased due to lower foreign exchange gains as a result of the fluctuations in the Canadian dollar. The net impact of these variances led to a $5.0 million or 4.6% increase in revenue in Canada. Our Canadian operations also experienced significant growth in advisory activities during the quarter. Our UK and Europe operations generated $69.0 million of revenue in Q3/13, a considerable increase of $56.3 million, as a result of the acquisition of the CSHP operations in Q4/12. The wealth management operation in the UK and Europe contributed $24.8 million while the capital markets operations contributed $44.2 million to the total revenue. Revenue in the US was $38.2 million in Q3/13, an increase of $20.2 million, or 112.2%, compared to Q3/12. The increase was mostly driven by higher principal trading revenue generated by the addition of certain principal trading units in the US through the CSHP acquisition. Advisory fees in the US contributed $5.2 million to the increase in total revenue as a result of an increase in advisory activity. Canaccord s global expansion into Asia through its acquisition of CSHP s Singaporean operations resulted in a $0.6 million increase in revenue in its Other Foreign Locations geographic region. Year-to-date fiscal 2013 vs. year-to-date fiscal 2012 Year-to-date revenue in Canada was $272.8 million, a decrease of 16.1% or $52.4 million from the same period a year ago. Revenue in the UK for the nine months ended December 31, 2012 was $177.6 million, which was a significant increase of $146.2 million compared to the same period a year ago. Revenue in the US was $109.9 million, $46.1 million or 72.3% higher than the nine months ended December 31, Revenue from Other Foreign Locations was $18.9 million compared to $6.8 million in the same period a year ago. The increase in revenue across the geographic locations was mainly attributable to Canaccord s global expansion in the UK and Europe, the US, Australia, Singapore, China, and Hong Kong. The growth in these geographic segments was offset by a decrease in revenue in Canada due to slower market conditions throughout the nine-month period ended December 31, 2012 compared to the same period in the prior year. Expenses Expenses for the three months ended December 31, 2012 were $216.9 million, an increase of 51.9% or $74.1 million from the same period a year ago. Expenses for the nine months ended December 31, 2012 were $608.8 million, an increase of 47.3% or $195.6 million from the same period a year ago. 14 CANACCORD FINANCIAL INC. THIRD QUARTER FISCAL 2013